Reviews: Schwager on Futures

We Chimps didn’t devise our trading strategies in a vacuum. Long before Genesis Trade Navigator, long before instantaneous computerized backtesting, there was Jack Schwager. This was the bible, the definitive work on all things technical, and it has been one of  go-to books for new ideas and lucid explanations ever since its release.

Nearly 20 years later, how does the book stand up? Simply put, the answer is very well, but the way in which we use it has changed significantly over time. I recall when I first started trading, some of these concepts had to be hand-coded or calculated. And it wasn’t nearly as easy to search the internet for examples and definitions. This book had it all in one place.

Schwager on Futures: Technical AnalysisSchwager on Futures: Technical Analysis

Now, every single concept he covers is just a click away. Without deeply understanding the concepts, you can put them on a chart. You can trade based on a chart with preset variables and advice found in the comments section of articles on Seeking Alpha. That’s dangerous, and it inevitably leads to confusion, misapplication, and inconsistent trading.

So this is how we use Schwager’s masterpiece today, and why it still deserves a place on every technician’s bookshelf. It takes us back to the basics, and it reminds us of the definitions and the geneses all the fancy indicators in all the dropdown menus in all charting programs out there today. Schwager explains the definitions, the merits, and the stumbling blocks of each of these tools. And if he hasn’t covered the exact tool you’re looking for, chances are that once you take a closer look at the math behind it, he will have discussed it in a more basic form.

Stock traders, don’t let the name of this book put you off. This one is for you too. Yes, most charts in this book are focused on futures markets, but the concepts remain the same, and the tools are all available to you on Thinkorswim, TradeStation, or whatever platform you choose.

Reviews: The Three Skills of Top Trading

The psychology of trading has been a perennial subject in books, seminars, and webinars for many years. I know this for a fact inasmuch as I have presented many of these. My first published book, in fact, was about the psychology of trading.

pruden three skillsThe Three Skills of Top Trading: Behavioral Systems Building, Pattern Recognition, and Mental State Management

There have been a number of good books covering the development of trading systems and pattern recognition in the stock and futures markets. Few books, however, have taken on the formidable task of combining behavioral systems building, pattern recognition, and mental states management in one comprehensive package. Hank Pruden has taken considerable time and devoted considerable effort to combining the best aspects of legendary market technical analyst Richard Wyckoff with the essential aspects of trader discipline and psychology.

Notwithstanding the fact that I have personally endorsed this great book on the back dust cover, it has been far too long since I reminded clients and subscribers about the great lessons to be learned from reading Pruden’s work. I liked it back in 2007, and I like it just as much now.

Reviews: Jack Schwager, Market Wizards

Market Wizards, Updated: Interviews With Top Tradersschwager market wizards

One of the most important things you learn as a trader is that we can give the best system in the world to a mediocre or losing trader, and the results will be pitiful. On the other hand, we can take an average system or even a system that’s below average and give it to a good trader, and the results will be positive.

Given the ready availability of system testing and development programs, there are no issues with regard to determining what constitutes a good system. All of that is a question of numbers. On the other hand the issue of determining what constitutes a good trader is a far less objective process that consists of many different features.

One way in which we can develop winning behaviors is by studying the behavior of winning traders. That much is obvious. However, finding those traders is an exceedingly difficult task both from the standpoint of the actual process involved in finding them but more so in getting them to cooperate for one-on-one interviews. Jack Schwager, Market Wizards book has achieved this momentous task skillfully, thoroughly, and insightfully. There are very few books that merit the high praise and consistently positive interviews that Jack’s book has received. I highly recommend it.

Reviews: Larry Williams & John J. Murphy

Contrary to prevailing thought, we at 2chimps.com do not spend our time lounging on the bottom of our cages, eating bananas, drinking coconut milk and heckling each other. We know how to read, we know how to write, and we know what separates valuable market information from worthless nonsense.

There are those in this business who revel in the worthless and enjoy obfuscation as a means of selling their reports and research. We enjoy keeping things simple given that simplicity is compatible with clarity and clarity is compatible with consistency and success. Accordingly, from time to time we will feature write-ups and reviews of some products and/or books which we feel are valuable to the trader in promoting the clarity we seek to convey.

The reviews below are two books I myself have found very useful in the development of my personal trading and my trading strategies. They aren’t new, but they’re time-tested classics. That said, they’re also not always easy to find, so I highly recommend getting a copy for your personal collection if possible.

How I Made One Million Dollars ... Last Year ... Trading CommoditiesHow I Made One Million Dollars … Last Year … Trading Commodities

I have known Larry Williams for at least 3 ½ decades. Done business with Larry and I presented seminars within a number of different countries. I have great respect for Larry’s ability to discover innovative patterns and systems in futures markets and to apply them with discipline.

In his classic book, Larry discusses the methodologies used to amass a fortune in the futures markets. This has always been one of my favorite reads, and I proudly enjoy a personally autographed copy from Larry.

I turn to this wonderful book several times a year in order to reacquaint myself with the methods and their use. While much of the material is now known to many traders the world over thanks to Larry’s having popularized them, the personal style and laid-back manner of presentation in this book makes it one of my favorites.

Screen Shot 2015-06-02 at 1.28.32 PMTechnical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications (New York Institute of Finance)

If you have an interest in technical analysis, then this is the best book for you. John Murphy is a seasoned veteran and technical analyst and presents the concepts clearly and concisely.

Whether you are new to technical analysis or an experienced trader, this book will not only serve as an outstanding review but will also be an excellent reference source for reacquainting yourself with technical methods you are considering for your trading.

Suggestions?

If you have suggestions for reviews and/or interviews let us know and we will attempt to make them part of our reports. Here are a few books that we have found valuable over the years. Hopefully they will mean as much to you as they have to us.

The Motif Revolution

The average investor has long been held captive by the financial establishment. For decades, brokers, financial analysts, money managers, and economists were held in the highest of regard. They maintained their vice grip on financial and market data, perpetuating the myth that only through them could investors obtain the best returns. And of course, they would gladly provide access to and information on markets, for a fee. That’s the American Way.

The Internet has changed the individual’s relationship to financial markets, like it has in so many other industries. We now have more direct and unmediated access to markets than ever before. This includes electronic order entry, low cost software for research and trading system development, virtually instant price executions, access to bid and offer data as well as size and price quotes, and legislation that has attempted to level the playing field. These are all examples of “disruptive technology” in the finance sector. They take the middleman out of the picture, finally connecting investors and traders directly with one another rather than through the old boys network of brokers and financiers.

No Brokers = More Money to Invest

The playing field is being leveled, to an extent. No, the situation is not yet ideal; money talks, politics remain supreme, payoffs abound, insider information persists, and large traders still get the edge. However, the small trader and the average investor have more opportunities to succeed now than ever before. And how is that?

We respectfully submit that a new category of investment vehicle, the Motif, can provide this advantage. Among the disruptions to the financial industry, it is the most threatening to the establishment. The Motif takes your commission dollars away from the brokers, it takes your investment dollars away from the fund managers, and it puts all of that cash into your own investment ideas, right where it belongs.

A Motif is a Concept in Investment Form

Through brilliant thought and execution the folks at Motif Investing bring us a fabulous new idea which The Chimps believe every investor needs to learn. Simply stated, a Motif, as its name implies, is a theme. This theme is the basis for a collection of stocks.

Motifs come in all different shapes and sizes. Motif Investing has a selection of pre-designed motifs, for example their highly popular Drug Patent Cliff, a basket of generic drug manufacturer stocks designed to maximally profit from the expiry of patents on popular medications held by big pharma. From their own description:

Big Pharma is headed for a big change. And generics are getting ready to grab their share. Branded drugs with sales of $86 billion would lose patent protection during 2013 to 2017. Some of the most lucrative targets for generics in 2013 include Eli Lilly’s Cymbalta, Biogen Idec’s Avonex and Merck KGaA’s Rebif. These drugs generated global sales worth $10 billion in 2012.

This motif, this pure and focused concept offered by no ETF to date, has brought investors a healthy one-year return of over 56%. Motif Investing offers a range of innovative stock baskets, with focuses ranging from momentum plays to rapid prototyping/3D printing innovators.

Your Concept, Your Motif

These already innovative conceptually focused investments may not even be the most exciting part of Motif. Motif has put the power completely in the hands of the individual investor. Don’t think Akorn deserves a 5% weighting in their Patent Cliff motif? Change it! Add another generic manufacturer that’s not already in the mix! As the kids say, you do you.

And when we say you do you, we REALLY mean it. Do you have an idea that’s not already in motif form? MAKE IT. It could be as simple as “companies my kids are buying toys from” or as complicated as “mid cap specialty retailers with low debt and substantial growth in BRICS countries”. If you have the idea, and you can find the symbols, you can put them into your own motif. Then you, and anyone else with an account at Motif Investing can buy that motif.

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An Applied Example

Consider the following situation:

Through your research you believe that precious metals will go higher, therefore, you want to buy a certain subset of precious metals stocks. Assume that you have only $25,000 to invest. Assume further that you have settled on spreading your risk over 8 different stocks. The average price of these stocks is $30.

If you are to buy shares of each of the 8 different stocks your total cost would be $3000 for 100 shares of each, putting your total investment at $24,000. Problem solved? Not exactly. For one thing, let’s say you’ve got a $10 commission per trade. So purchase and sale are at $160 minimum, assuming a buy-and-hold strategy and thus barring any kind of dollar cost averaging, intermediate purchases and sales, etc. And then you’ve got that $840 that never quite found a place, what a shame!

Would there be another alternative? Yes, you could scrap the research, forget about the 8 carefully-selected stocks, and buy an ETF that represents the metals sector. Problem? You don’t like the metal stocks that were chosen for that fund. There might be another ETF that matches your goals more closely, but exactly how close can you expect to get? Then you’ve STILL got the cost of purchase and sale, as well as the ETF fee structure that only penalizes you for profit. Sure, it’s not terribly expensive, but is cheap worth it when you can’t fully realize your investment strategy?

How about another solution: take those 8 stocks and put them into your own custom motif. Simply go back to your original plan and decide how large a component each of your original 8 should be. No longer are you bound by the idea of trading even lots and worrying about minimum and maximum stock price. Mix up the strategy by including related companies, processors, real estate plays, retailers, or manufacturers. At this point, you’ve got a lot more offered than just your original 8 stocks; you’ve added important weighting and diversification to your strategy.

Congratulations, you’ve just created your own motif. Now buy as little of it as $250 worth or as much as you like, and pay just $9.95. A year or two down the road when you decide you want to change the weighting or add or remove components, it’s the same low fee to make the adjustment.

Two Chimps & Motif

The Chimps have created their own motifs, and we want to encourage you to do the same! For an example, check out Boom Zoom (a motif created by Chimp Elliott). This motif  is focused on the preferences and needs of retirees during the ongoing generational change. The fund’s holdings and performance are below, as shown by the Motif website:

boom zoom

The blue line shows the Boom Zoom motif from inception in early Sept. 2014, and the green line shows the S&P performance during the same period.

A list of the motif’s holdings can be seen below:


Screen Shot 2015-04-12 at 1.48.05 PM

Please note in evaluating the Boom Zoom motif, that Chimp Elliott is not an economist, nor for that matter is he a financial analyst. He is purely a technical monkey who understands trends and indicators, and uses these important tools developed by Chimp Jacob to his advantage. If we can do it, so can you!

Design Awesome Motifs, Get Paid

Wait a second. What? Motif is turning the idea of the broker on its head COMPLETELY. You as an individual can earn money for the investment products you design.

If you’ve got an amazing idea for a new motif, why shouldn’t you be rewarded for that? That’s what Motif thinks. If other investors on Motif buy or customize the motifs you design, you get money. There’s a very strong social component to the Motif community, so you’ll have the chance to discuss your ideas, refine them, and present them in their best light to other thinking investors.

Take back the power and start investing with motif today!

Chimps Jake & Elliott

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